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Medicare upcoding and hospital ownership.

Elaine Silverman¹, Jonathan Skinner

¹Dartmouth Medical School, Hanover, NH 03755, USA.

Journal of Health Economics

|March 17, 2004

Summary

Hospitals, particularly for-profit ones, increased "upcoding" of patient diagnostic related groups (DRGs) to boost Medicare reimbursements in the 1990s. This practice was more prevalent in competitive markets and linked to administrative incentives.

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Area of Science:

Health Economics
Healthcare Management
Medical Billing

Background:

Hospitals faced accusations of diagnostic related groups (DRGs) upcoding in the 1990s to inflate Medicare reimbursements.
This practice involved assigning higher-paying DRGs than justified by patient diagnoses.

Purpose of the Study:

To investigate the prevalence and patterns of DRG upcoding among different hospital ownership types between 1989 and 1996.
To examine the influence of market competition on upcoding behavior.

Main Methods:

Analysis of hospital billing data from 1989 to 1996.
Comparison of DRG upcoding rates across not-for-profit, for-profit, and converting hospitals.
Examination of the correlation between market competition (for-profit hospital share) and upcoding.

Main Results:

A significant increase in the share of the most generous DRGs for pneumonia and respiratory infections was observed.
Upcoding rose by 10 percentage points for not-for-profit, 23 points for for-profit, and 37 points for converting hospitals.
Not-for-profit hospitals in markets with a higher for-profit share exhibited greater upcoding.

Conclusions:

DRG upcoding was a notable trend in the 1990s, varying by hospital ownership and market dynamics.
The findings suggest upcoding reflects administrative risk-taking and alignment with clinical staff incentives.
Hospital financial incentives and market structure significantly influenced billing practices and Medicare reimbursement strategies.

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